For the U.S. Economy, Storm Clouds on the Horizon
By Binyamin Appelbaum, New York Times Nov. 28, 2018
WASHINGTON — Emerging signs of weakness in major economic sectors, including auto manufacturing, agriculture and home building, are prompting some forecasters to warn that one of the longest periods of economic growth in U.S. history may be approaching the end of its run.
The economy has been a picture of health, expanding at a 3.5 percent annual pace during the third quarter and driving the unemployment rate to 3.7 percent, the lowest level in almost half a century. But General Motors’ plans to cut 14,000 jobs and shutter five factories reinforces other recent indications that the better part of the expansion is now in the rearview mirror.
“We’re in the 10th year of the expansion, and there are some soft points,” said Ellen Hughes-Cromwick, a former chief economist at Ford Motor Co. and the Commerce Department who is now on the faculty at the University of Michigan. “The auto sales cycle has peaked, and the housing cycle also has peaked.” If interest rates continue to rise, she said, “I don’t really see how the economy can keep powering ahead.”
The vast majority of prominent economic forecasters, including various arms of the federal government and all of the major Wall Street banks, still regard continued growth as the most likely outcome for the U.S. economy in 2019. But there is a broad consensus that the pace of growth will slow as the sugar high provided by the Trump administration’s $1.5 trillion tax cut and spending increases begins to wear off. And some forecasters see a small, but growing, chance of a recession.
President Donald Trump’s chief economic adviser, Larry Kudlow, tried to play down such concerns Tuesday, insisting that the overall health of the economy remained robust. “There’s a certain amount of pessimism I’m reading about, maybe it has to do with a mild stock market correction,” Kudlow said, before describing such pessimism as misplaced. He rattled off recent economic data — including the most recent jobs report, which he described as “very spiffy” — to highlight the strength of the U.S. economy, before his conclusion: “We’re in very good shape.”
Jerome H. Powell, the Federal Reserve’s chairman, has also taken an optimistic line, declaring in Texas recently that he was “very happy about the state of the economy.”
The basic cause for concern is a widening gap between the evident strength of the economy this year and weakness in economic indicators that look ahead to coming years. That gap was highlighted Tuesday in the latest data on consumer confidence, which showed Americans remained pleased with their present circumstances, but were less confident that growth would continue.
Investors are showing signs of concern about the ability of the corporate sector to maintain sky-high levels of profitability. Major stock indexes are roughly flat for the year. Some businesses are starting to worry, too. Farmers are facing large losses because they cannot sell crops to China during a trade war between Washington and Beijing. Sales of new and existing homes have declined in recent months as interest rates rise. Auto sales, also vulnerable to higher rates, have been falling since 2016.
“This is a geriatric expansion,” said David Kelly, chief global strategist at JPMorgan Funds.
Kelly noted that if economic growth continued through next summer, this would become the longest-running expansion of the U.S. economy since at least the Civil War.
It is proverbial among economists that expansions do not die of old age. But the end of Trump’s fiscal stimulus will most likely drop economic growth back toward an annual rate around 2 percent, leaving little margin for error. “It wouldn’t take much to go wrong to put us into a recession,” Kelly said.
Many analysts regard Trump and Powell as the greatest threats to the economic expansion.
Trump’s trade war with China has yet to make a discernible dent in domestic growth, but if the conflict continues, or escalates, the impact on the economy could increase.
Another concern is that the Fed’s current path of interest rate increases will choke growth.
Both forces already are battering the automobile industry. Trump’s tariffs on aluminum and steel have raised costs for carmakers, the nation’s largest consumer of those materials. The Fed’s rate increases, meanwhile, have raised the cost of car loans, discouraging potential buyers.
Trump told The Washington Post on Tuesday that the Fed was undermining economic growth and blamed it for the woes of General Motors. “I’m doing deals, and I’m not being accommodated by the Fed,” he said. “They’re making a mistake because I have a gut, and my gut tells me more sometimes than anybody else’s brain can ever tell me.” The Fed is widely expected to raise its benchmark interest rate for a fourth time this year at its next meeting, in mid-December. But Fed officials, well aware of the danger, have emphasized in recent weeks that their plans for next year will depend on the evolution of the economic data.
Richard Clarida, the Fed’s vice chairman, said Tuesday the economy remained “robust,” and the Fed planned to keep raising rates. Deciding how high to go, he said, would require “judgment and humility.”
Powell said this month that the Fed would proceed like a man in a dark room. “What do you do?” he said. “You slow down. You stop, probably, and feel your way. It’s not different with policy.”
GM’s cuts reflect the particular challenges facing the auto industry, including the nascent shift toward electric and self-driving vehicles. Mary T. Barra, the company’s chief executive, said GM was eliminating some mechanical engineers to make room for more software engineers. And she said the company was not acting in anticipation of a recession. “We are taking these actions now while the company and the economy are strong to stay in front of a fast-changing market,” she said.
But the company’s retrenchment underscored the broader fragility of the economic expansion. GM must fund its investment plans by cutting back in other parts of its business because its costs are rising while its sales are declining in both of its major markets: the United States and China.
The Trump administration said its economic policies would deliver a lasting boost to growth, and Trump specifically highlighted the auto industry, and GM, as beneficiaries of those policies. So far, however, those policies have delivered a short-term increase in spending. The tax cuts passed in 2017 were designed to encourage investment: New factories, new equipment, new products. Tariffs on foreign steel and aluminum, and on Chinese goods, were supposed to serve the same purpose. But GM has said the cost of the tariffs exceeds the benefits from the tax cuts — and instead of building new factories, GM is moving to shutter domestic plants.
Kudlow defended the administration’s policies Tuesday and said that revisions to the North American Free Trade Agreement would help the auto industry. “There’s a lot of disappointment, even anger,” about the company’s decision, he said. The administration also said it was considering ways of punishing GM by ending other federal subsidies, which seemed unlikely to help the economy.
Some analysts say the focus on what might go wrong is obscuring the reality that the economy remains strong. The primary engine of growth is consumer spending, which accounts for about two-thirds of economic activity. The pace of wage gains has increased, consumer confidence remains close to the post-recession high set earlier this year, and retailers are anticipating a strong holiday season.
“Consumers haven’t run out of money and confidence yet, which means economic growth remains on track,” said Chris Rupkey, chief financial economist at MUFG. Rupkey noted that 46.6 percent of consumers said in the November survey of consumer confidence that good jobs were plentiful, the best figure during the current recovery. “Why is confidence so high?” he asked. “It’s jobs, jobs, jobs.”
Sweden Is On The Verge Of Going Completely Cashless: What Could Possibly Go Wrong?
ZeroHedge.com Tue, 11/27/2018 - 05:00
Authored by Daisy Luther via The Organic Prepper blog,
Sweden is rapidly turning into a cashless society, which seems like the utopian dream of many a government figure.
What could possibly go wrong from the government’s point of view? Isn’t it ideal that they could soon digitally control every single person in the country?
Actually, quite a few things are going wrong. So much so that even members of the government are expressing concern.
Sweden is the most cashless society in the world
The change is happening fast in the European country.
“No cash accepted” signs are becoming an increasingly common sight in shops and eateries across Sweden as payments go digital and mobile……Sweden is widely regarded as the most cashless society on the planet. Most of the country’s bank branches have stopped handling cash; many shops, museums and restaurants now only accept plastic or mobile payments…
…Last year, the amount of cash in circulation in Sweden dropped to the lowest level since 1990 and is more than 40 per cent below its 2007 peak. The declines in 2016 and 2017 were the biggest on record……An annual survey by Insight Intelligence released last month found that only 25 per cent of Swedes paid in cash at least once a week in 2017, down from 63 per cent just four years ago. A full 36 per cent never use cash, or just pay with it once or twice a year. (source)
Cash is used so infrequently that the government of the country has demonstrated concern. And this isn’t just in the big cities. A source in rural Sweden tells me that even in his remote area, the push to go cashless is omnipresent.
What could possibly go wrong?
The folks of Sweden have so little use for cash that it’s predicted many stores will no longer even accept it by 2025. And according to an article in the Financial Post, the government is beginning to have second thoughts.
…The government is recalculating the societal costs of a cash-free future.
The financial authorities, who once embraced the trend, are asking banks to keep peddling notes and coins until the government can figure out what going cash-free means for young and old consumers. The central bank, which predicts cash may fade from Sweden, is testing a digital currency — an e-krona — to keep firm control of the money supply. Lawmakers are exploring the fate of online payments and bank accounts if an electrical grid fails or servers are thwarted by power failures, hackers or even war. (source)
And the potential of a down-grid situation isn’t the only problem. Older Swedes and immigrants who aren’t really involved in the digital society could have great difficulty making transactions.
Consumer groups say the shift leaves many retirees — a third of all Swedes are 55 or older — as well as some immigrants and people with disabilities at a disadvantage. They cannot easily gain access to electronic means for some goods and transactions, and rely on banks and their customer service. (source)
We all know some folks who eschew online banking and never use a debit card. Many of these people are senior citizens who aren’t ready to learn a new technology. As well, there’s a cost involved in taking part in a technological economy: smartphones, internet service, and computers are simply not a part of the lifestyle of many folks.
One group, the Swedish National Pensioners Organization, is attacking this issue by teaching classes to get them more comfortable with digital transactions. “We have around 1 million people who aren’t comfortable using the computer, iPads or iPhones for banking,” said Christina Tallberg, 75, the group’s national president. “We aren’t against the digital movement, but we think it’s going a bit too fast.”
The organization has been raising money to teach retirees how to pay electronically, but, paradoxically, that good effort has been tripped up by an abundance of cash. When collections for training are taken in rural areas — and the seniors donate in cash — the pensioner in charge must drive miles to find a bank that will actually take the money, Tallberg said. About half of Sweden’s 1,400 bank branches no longer accept cash deposits.
“It’s more or less impossible, because the banks refuse to take cash,” she said. (source)
Just to emphasize…”the banks refuse to take cash.” THE BANKS.
The reason given for the refusal to accept cash is that they wish to prevent recurrences of the violent robberies that took place in the early 2000s.
And of course, there’s concern of government control.
It seems rather ironic that it’s the government pointing out the possibility of trouble with government control in a cashless society, especially since they’re considering rolling out a new digital currency called the e-krona.
The central bank has plans to roll out a pilot version next year of a new type of Riksbank money — the digital krona, or e-krona — that could replace physical cash or at least help calm the current cash conundrum. An e-krona would mean that the functions of a currency backed by the state would remain, even in an all-digital world that is fast approaching.
Christine Lagarde, managing director of the International Monetary Fund, noted last week that several central banks were “seriously considering” digital currencies. (source)
If the government were in charge of the digital currency, the amount of control they’d have would be breathtaking. Could they simply make your digital currency invalid if you owed taxes or were suspected of a crime? Could they wipe out everyone’s online accounts in the event of some kind of bank holiday or economic collapse?
If the grid went down in a long-term way, all you’d saved would be lost forever. A short power outage would cripple communities. Every single purchase you make would leave a digital footprint, and huge amounts of personal data could be mined from it. And what about the possibility of online bank robberies carried out by hackers?
The list of things that could go wrong is infinite.
And of course, it all goes back to microchips.
Out of all the nations in the Western world, it seems that Sweden is the most enthusiastic about the embedding of microchips into humans “for convenience” purposes. Recently, Adam Palmer wrote about how thousands of Swedes were voluntarily getting the chip for their own convenience.
The microchip “bypasses the need for cash, tickets, access cards, and even social media,” according to the Daily Mail…
…In June, 2017, SJ Rail, the Swedish train operator, announced that 100 people were using microchips for train rides, obviously indicating that the rail system was already set up to handle the payment system before anyone was ever microchipped.
For this system, passengers with a microchip in their hand have their ticket loaded directly onto the device and the train conductor can read the chip with a smartphone to confirm payment.The Daily Mail paints the chip in a positive light, recounting the opinion of Szilvia Varszegi, 28, who said the chip “basically solves my problems.” The “problems” Ms. Varszegi is referring to is apparently the “problem” of manually purchasing a ticket or engaging in a phone-based transaction. (source)
Well, thank goodness poor Ms. Varszegi’s horrible burden has been lightened.
Many readers expressed dismay, shock, and revulsion at the very idea of having a chip implanted in their bodies, and I’m with you. But we’re witnessing something important here. We’re watching an alarming glimpse at the future.
The endgame of complete control truly seems to be in sight as more and more Swedes go cashless
Societe Generale to pay $1.4 billion to settle cases in the U.S.
Katanga Johnson, Karen Freifeld, Inti Landauro
PARIS/WASHINGTON (Reuters) - French banking giant Societe Generale on Monday agreed to pay U.S. federal and state authorities $1.4 billion to resolve pending legal disputes.
The bank agreed to pay $1.34 billion to settle investigations into its handling dollar transactions in violation of U.S. sanctions against Cuba and other countries, the bank and the U.S. authorities said in separate statements.
Additionally, the bank said it agreed to pay $95 million to settle another dispute over violations of anti-money laundering regulations.
SocGen, as the bank is informally known, has been dogged for more than a year by a series of costly legal disputes. The last case it said remained to be settled was the one related to dollar transfers made on behalf of entities in countries subject to the U.S. economic sanctions.
“We acknowledge and regret the shortcomings that were identified in these settlements, and have cooperated with the U.S. Authorities to resolve these matters,” the bank’s Chief Executive Frederic Oudea said in a statement.
“These resolutions, following on the heels of the resolution of other investigations earlier this year, allow the Bank to close a chapter on our most important historical disputes,” he added.
From 2003 to 2013, the bank executed billions of dollars in illegal transactions to parties in countries subject to embargoes or otherwise sanctioned by the United States, including Iran, Sudan, Cuba and Libya, the authorities said.
The fines were issued by the Federal Reserve, U.S. Department of Justice, the U.S. Treasury’s Office of Foreign Assets Control, the New York County District Attorney’s Office and the New York Department of Financial Services.
The $1.34 billion in penalties is the second largest imposed on a bank for violating U.S. sanctions, according to the Manhattan U.S. Attorney’s office.
SocGen’s French rival BNP Paribas agreed to pay $8.9 billion in a settlement on sanction violations in 2015.
SocGen has also signed deferred prosecution agreements, which provide that, following a three-year probation period, the bank will not be prosecuted if it abides by the terms of the agreements.
In a statement, the bank said the fine was entirely covered by the provision for disputes booked in Societe Generale’s accounts and that the settlement would not have an additional impact on its results for 2018.
Societe Generale had a total provision of 1.58 billion euros to cover the financial cost the pending disputes could bring on its accounts.
In June, the bank had already agreed to pay $1.3 billion to authorities in the U.S. and France to end the disputes over transactions made with Libya and over the suspected rigging of Libor, a key interest rate used in contracts worth trillions of dollars globally.
As part of the process to settle the Libor case, the bank had agreed in march to let go Didier Valet, its deputy CEO in charge of investment banking activities, who was widely seen as a potential Oudea successor.
SocGen had already paid 963 million euros in mid-2017 to settle another dispute with the Libyan Investment Authority.
The deferred prosecution agreements are subject to court approval in the United States.
Wells Fargo fights to leave customers out of auto payout plan
Patrick Rucker, Imani Moise
WASHINGTON/NEW YORK (Reuters) - Wells Fargo & Co (WFC.N) is fighting to shut some customers out of a sweeping plan to compensate around 600,000 drivers it pushed into car insurance they did not need, according to court documents and a source familiar with the effort.
U.S. regulators fined Wells Fargo $1 billion in April over the insurance program and told the bank to compensate drivers who were harmed. Those drivers are also suing Wells Fargo in a federal court in California for more compensation that the bank is willing to pay.
The faulty insurance program ran from 2002 to 2016 but the bank only intends to compensate drivers forced into policies from 2005 onwards, Wells Fargo has told the federal judge overseeing the case.
Wells Fargo’s reluctance to compensate all drivers contradicts its pledge to help every customer who was hurt and that could intensify scrutiny of the scandal-plagued bank. Lawyers for the drivers have argued that the compensation plan should cover the entire life of the insurance program but the bank is not persuaded, according to court documents obtained by Reuters.
“There’s no credible reason why you don’t go back to the inception of the program,” Roland Tellis, an attorney for the drivers, said at an August hearing.
Tellis did not respond to requests for further comment.
Tim Sloan, Wells Fargo’s chief executive, told lawmakers last year that the bank was “working diligently to make things right for every customer who was harmed.” But a lawyer for the bank argued at the same court hearing that it has already “compromised” by allowing payouts from 2005 to 2016, according to the official court transcript.
Wells Fargo has records from the first three years of the insurance program but those are held in a separate database to the 2005-2016 files, the lawyer said. He did not explain why the bank did not wish to access the earlier database and the bank declined to elaborate when contacted by Reuters.
Any driver who believes that he or she was hurt in the insurance program can contact the bank directly and make a claim, a spokeswoman for the bank said.
“We invite them to reach out to us with their insurance information,” Wells Fargo said in a statement to Reuters.
Tellis and other lawyers want a payout exceeding three times what drivers were charged, which could add costs and uncertainty to a scandal that continues to worry investors. The final terms of the private litigation could affect the ongoing remediation plan the bank agreed with federal regulators.
The Consumer Financial Protection Bureau (CFPB) allowed the bank to limit its payout plan to the 2005-2016 time frame in its April settlement with the bank. A spokesman for the bureau declined to comment on the scope of the payout plan.
The Office of the Comptroller of the Currency (OCC), which had a part in the April fine, declined to comment. The OCC’s settlement did not set a specific time frame for payouts.
Over the summer, the OCC rejected the bank’s plan to repay customers with Joseph Otting, head of the OCC, telling lawmakers in October that he was “not comfortable” with the bank’s effort.
Newly Unsealed Documents Show Top FDIC Officials Running Operation Choke Point
Norbert Michel Contributor Forbes.com
Policy I follow the evolution and devolution of monetary and financial policy
Last week brought new revelations regarding Operation Choke Point, the Obama administration’s effort to freeze politically disfavored businesses out of the financial system. Rep. Blaine Luetkemeyer (R-Mo.), who helped lead a multi-year effort to shut the program down, highlighted some of theses newest findings and pointed out that stopping Operation Choke Point is not a partisan issue.
Luetkemeyer’s legislation to prevent a redo of Choke Point – The Financial Institution Customer Protection Act of 2017 – overwhelmingly passed the House, with only two nay votes. Operation Choke Point was an egregious affront to the rule of law, so it is good to see that so many lawmakers want to prevent a repeat.
For those unfamiliar, Choke Point consisted of bureaucrats in several independent federal agencies taking it upon themselves to shut legal businesses – such as payday lenders and firearms dealers – out of the banking system. Given the nature of the U.S. regulatory framework, this operation was easy to pull off.
Officials at the Federal Deposit Insurance Corporation (FDIC), for instance, simply had to inform the banks they were overseeing that the government considered certain types of their customers “high risk.” The mere implication of a threat was enough to pressure banks into closing accounts, because no U.S. bank wants anything to do with extra audits or investigations from their regulator, much less additional operating restrictions or civil and criminal charges.
Banks are incredibly sensitive to any type of pressure from federal regulators, and they know that the regulators have enormous discretion. The new revelations are quite scary because they show exactly what federal regulators can do with that discretion – even to law-abiding citizens. As Rep. Luetkemeyer points out:
In one example of blatant intimidation, a bank terminated its relationship with a legal business after threats from the FDIC. The bank eventually surrendered to the pressure, and when the bank notified the FDIC of the decision, they admitted that a risk assessment showed the business “pose[d] no significant risk to the financial institution, including financial, reputation, and legal risk,” yet they still terminated the banking relationship.
For years, Office of the Comptroller of the Currency officials have continually denied any wrongdoing, yet in the newly-unsealed documents we see proof of a conscious decision to work in conjunction with the FDIC against payday lenders.
In fact, the evidence suggests that the highest-ranking officials at the FDIC were involved in Choke Point. For instance, on page 5, the following facts are revealed:
At the very least, the Trump administration owes the public a full investigation into Operation Choke Point and an explanation for why many of the people involved in this abuse of power are still working for the government.
Mike Maloney: One Hell Of A Crisis Looms
ZeroHedge.com Wed, 11/07/2018 - 20:05
Authored by Adam Taggart via PeakProsperity.com,
Mike Maloney, monetary historian and founder of GoldSilver.com, has just released two new chapters of his excellent Hidden Secrets Of Money video series.
In producing the series, Maloney has reviewed several thousand years of monetary history and has observed that government intervention and mismanagement -- such as is now rampant across the world -- has always resulted in the diminishment and eventual failure of currency systems.
As for the world's current fiat currency regimes, Mike sees a reckoning approaching. One that will be preceded by massive losses rippling across nearly all asset classes, destroying the phantom wealth created during the latest central bank-induced Everything Bubble, and grinding the global economy to a halt:
Gold and silver are tremendously undervalued right now, and I dare you to try to find another asset that is tremendously undervalued. There just is not. By all measures, everything is just in these hyper-bubbles. OK, real estate is not quite a hyper-bubble; it's not quite as big as 2005 and 2006, but by all measures, it's back into a bubble. But now, we've got the bond bubble, the biggest debt bubble in the world. These are all going to pop.
We had a stock market crash in the year 2000, and then in 2008, we had a crash in stocks and real estate. The next crash is going to be in stocks, real estate and bonds -- including a lot of sovereign debt, corporate bonds and a whole lot of other bonds that will be crashing at the same time. So, it will be all of the standard financial asset classes, including the traditional 'safe haven' of bonds that are going to be crashing at the same time that the world monetary system is falling apart.
In response, there's going to be an emergency meeting of a bunch of like the G20 finance ministers and a bunch of economists or something like that, just like there was in 1922 in Genoa, the Genoa Conference, where they came up with the gold exchange standard. Just like in 1944 at the Bretton Woods Conference, when they came up with the Bretton Woods system. Just like in 1971, when they came up with the Washington Accord, which was a new monetary system that actually never got implemented because when Bretton Woods fell apart, it just dissolved into sort of a default: everybody had US Dollars, and so the US Dollar was just selected as the international currency. This has been to great benefit of the United States. Every time we create a new dollar and cause inflation, it doesn't just dilute the dollars within the United States since more than half of the dollars reside outside the United States. So, when we cause inflation of the currency supply that's outside the United States, it steals purchasing power from other countries and transfers that purchasing power to the United States.
So, we have had this privilege, and we have abused this privilege, starting with George Bush Jr., with the deficit spending that he started and then Obama magnified. And now last year, they're saying it was $800+ billion, but the national debt went up by like $1.1 or $1.2 trillion. We are already in trillion-dollar deficits right now.
So, we've got this convergence of things happening. But it gets worse.
One of things that I discovered when I was updating my book was the relatively recent financialization of government. I was looking at a chart of the tax revenues for the Federal Government. I went "Oh my God, this looks like a chart of the stock market." I overlaid tax revenues with the Wilshire 5000 total market cap index and loo and behold, they had no correlation before the year 2000, but since the year 2000, when the stock market goes down, so do tax revenues. When the stock market goes up, so do tax revenues. So, the government now is highly dependent on the stock markets doing well. In the stock market crash in 2000, tax revenues fell 18%. In the global financial crisis of 2008, tax revenues fell 28%. It took 4-1/2 years from the crash of 2000 to get tax revenues back up to the breakeven point, where they were in the year 2000. It took 5-1/2 years from 2008 to get tax revenues back up to the breakeven point. During these pullbacks in tax revenues, deficit spending explodes, and currency creation has to explode to accommodate all of the deficit spending. We are already doing these trillion-dollar deficits and that means when the next crisis hits, it's going to be one hell of a crisis. So, I am expecting the stock market to fall more than it did in the crisis of '08, and that means the tax revenues are probably going to fall by 50% or 60% or more.